Ending Entitlements Works for the Poor

A veteran of the 1996 welfare battle charts past successes and future challenges

I won’t pretend to be unbiased in the welfare reform debate. I worked in the trenches for House Republicans during the 1995–96 struggles to “end welfare as we know it.” Now that the landmark reform act is up for reauthorization by Congress, it’s time to survey what has happened since those heady days and consider the best course not only for future government action but also for private philanthropic efforts to help the needy among us.

Two different approaches to helping the poor lie at the heart of the welfare debate. One side has defended the pre-reform status quo, in which every person or family who met the government’s requirements for welfare was entitled to receive those benefits without precondition or limit. The other side has insisted that although Americans are obliged to care for the needy, genuine respect for the poor requires that they not be treated as passive recipients of government largess but as productive citizens who have reciprocal obligations for any aid they receive. The old status quo, critics argued, was a one-way street that led the poor into a life of dependency and ignored any help for the poor that didn’t come from government. By contrast, reformers stressed that aid to the poor should include reciprocal obligations that would make it clear to the needy that they can be and are expected eventually to become self-sufficient workers. This way of helping the poor, as we shall see, allows for private as well as government efforts to assist the needy in becoming self-sufficient. Indeed, it requires the poor to practice virtues that can’t be learned just by cashing a government check.

The major differences between the two approaches to helping the poor were on full display during Congress’s welfare reform debate of 1995–96. Reformers were determined to achieve two major goals. First, they wanted to impose strong work requirements on virtually all welfare recipients. Second, they insisted on placing an unprecedented emphasis on family formation by writing laws designed to reduce illegitimacy and promote marriage. Here I summarize the major provisions of the 1996 law, briefly review some of its achievements, and then explain how I think the reauthorization legislation can best help the needy.

Welfare’s Record of Failure

At least since the 1960s, welfare law had included vague language extolling the value of work, but the actual work requirements were weak. Similarly, during the 1995–96 welfare reform debate the defenders of the status quo talked constantly about their willingness to encourage work, but the serious work requirements that reformers proposed aroused strong opposition. Yet with majorities in both houses of Congress, Republican reformers seized the opportunity to put work requirements into law.

In 1995, young, able-bodied mothers were eligible for three major entitlement benefits: cash, food stamps, and Medicaid. (If they had a disability, they were also entitled to cash from the Supplemental Security Income program.) Depending upon their state of residence, these women’s usual package of benefits was worth around $12,000. All a young woman had to do to claim this entitlement package was to have a child she could not support and then not work. This system, complained the reformers, presented a lethal set of incentives to young poor women that too often led to the learned helplessness of welfare dependency.

Although defenders of the status quo took this entitlement system to be humane and compassionate, often referring to critics as “mean-spirited” or worse, reformers opposed providing benefits without some reciprocal obligation from young mothers. The solution was to replace entitlement with work. Thus the oldest and most famous entitlement—the Aid to Families with Dependent Children program, which had provided cash benefits to destitute families since 1935—was replaced in the welfare reform bill by a program called Temporary Assistance for Needy Families (TANF).

The new program had five major characteristics. First and foremost was ending the entitlement to cash benefits. Second, in place of funding based on the number of families receiving benefits, states were given a block grant with fixed funding, based primarily on the number of federal welfare dollars given to the state in the years before 1996. Block grant funding lets states that help families that leave welfare through work or marriage end up with excess federal dollars, because successful states’ total benefit payments fall while their block grant funding remains fixed. Reformers liked block grant funding not only because it gave states financial incentives to reduce welfare rolls by promoting work and marriage, but also because it gave states flexibility to design their own programs and spend money where it would do the most good. Third, reformers insisted on requiring work of nearly everyone on welfare. They especially wanted to overcome the toothless work “requirements” of previous law and the tendency of states to place mothers in ineffective education and training programs and call this “work.” The reformers carefully defined what qualified as work and required states to have a growing fraction of their welfare clients in genuine work programs. Fourth, reformers gave the work requirement teeth by making states sanction any parent who did not meet it. States had to reduce the cash payment to these families and were allowed to terminate benefits for serious violations. In the end, 37 states adopted policies that permitted complete termination of benefits.

The fight over sanction policy clearly illustrates a major difference between the entitlement and the anti-dependency approaches to helping the poor. If, on the one hand, welfare is an entitlement, then reducing and terminating benefits should be a last resort and should be subject to procedures that protect recipients in danger of losing their entitlement. On the other hand, if welfare policy should be based on reciprocal obligations between those who help and those who receive help, then destitute families cannot be assumed to have an inalienable right to cash welfare. Society should be willing to help destitute parents, but only on the condition that they also help themselves.

In addition to sanctions on parents, the reform bill included sanctions on states that failed to meet the work participation requirements. Reformers did not believe every state would aggressively require work if left to its own devices. Because reformers were intent on replacing entitlement welfare with work-based welfare, they were willing to trump state flexibility with mandatory penalties for any state that did not implement the work requirements.

Finally, reformers placed a five-year limit on the reception of welfare benefits. Welfare was no longer a lifelong entitlement; it was temporary because its goal was to stabilize families in crisis, get them back on their feet, and get them into the labor force. The time limit was a signal to potential recipients, especially those who had learned that previous reform efforts were false alarms, that welfare was now truly temporary and work was mandatory.

Reform’s Success

These reforms constituted the most fundamental overhaul of any major welfare program in American history. And the impacts at five years, aided by a strong economy, are hardly less revolutionary.

Cash welfare rolls are in the first sustained period of decline in history. Compared to the previous record—a roughly 7 percent decline over two years—the rolls have declined for six consecutive years and the number of families on welfare has declined by nearly 60 percent from the peak of 5.2 million families in spring 1994.

The years since 1994, and especially since 1996, have seen an unprecedented rise in employment by single mothers, a rise nothing short of astounding for never-married mothers—who are precisely the ones most likely to go on welfare and stay for long periods.

These same years have seen large increases in the income of mother-headed families. The basic pattern for low-income mothers (those below about $21,000 per year) has been repeated almost every year since 1994: Income from cash welfare and food stamps has dropped steadily; income from earnings and the Earned Income Tax Credit (EITC) has risen even more than welfare income has declined; thus net income has increased by about 25 percent.

Poverty is in its most sustained period of decline since the early 1970s. Until 1994, poverty had drifted upward since the early 1970s—despite huge increases in welfare spending—primarily because more and more families with children were headed by females, many of them out of the labor force. But given the substantial increase in earnings by single mothers, supplemented by the EITC and other government benefits, child poverty has declined rapidly. The poverty level for black children is the lowest ever, as is the poverty rate for families headed by females. A broad Census Bureau measure of poverty that includes income from the EITC shows that child poverty has declined more than twice as much during the economic expansion of the 1990s as during the economic expansion of the 1980s.

The major effects of welfare reform can be succinctly summarized: Welfare down, employment and earnings up, poverty down. What outcomes could better justify the reformers’ agenda? In 1996 no one predicted that welfare rolls would decline so much, that work and earnings by mothers would increase so much, and that poverty would decline so precipitously. Nor is this all. Recall that reformers pushed two major goals—work and family formation. Although success on the family-formation agenda has not been as notable as success in promoting work, some modest signs suggest the nation is turning a corner in the fight to increase children’s likelihood of being reared by married parents.

Strengthening Families

During the welfare reform debate the fight over family formation was not one the nation particularly wanted. Measures to reduce illegitimacy received far less public support than measures designed to reduce welfare dependency. The main reason reformers hoped to reduce illegitimacy and promote marriage was that research unequivocally shows that children do best in families headed by two parents married to one another. Children in female-headed families are more likely to be poor, more likely to do poorly in school, and more likely to be involved in delinquency and crime, and the girls are more likely to become pregnant as teens. Remarriage does not seem to help much; Humpty Dumpty cannot easily be put together again. And although the research is not as overwhelming on this point, the evidence suggests that welfare plays some role in family formation, probably because it increases the likelihood of both divorce and out-of-wedlock births. Reformers, in short, had good reasons to insist that single-parent families were disastrous for children and that welfare contributed to the growth of female-headed families. Thus reformers relentlessly called for strong measures against illegitimate births and in support of marriage. In fact, a few congressional Republicans, led by Jim Talent and Tim Hutchinson in the House and Loch Faircloth in the Senate, felt so strongly about this issue that they threatened to oppose the welfare reform legislation—Faircloth actually did oppose the final bill—unless more provisions on illegitimacy were included.

In the end, some 15 provisions designed to fight illegitimacy were included in the law. Arguably the most important provisions were the dramatic tightening of the child support enforcement program, the requirement that states establish paternity in 90 percent of out-of-wedlock births or suffer financial penalties, the funding for every state to establish abstinence education programs, and the cash bonus given to states that reduced their rates of out-of-wedlock births. Not only did these provisions show that reformers had succeeded in bringing illegitimacy to national attention, they also thrust responsibility for devising policies to fight illegitimacy and promote marriage firmly into the orbit of federal and state governments, while leaving open the opportunities for private groups—including faith-based organizations—to help strengthen families.

Given the evidence five years later, it would be a stretch to claim that these innovative policies on family formation have caused big changes in the mating or marriage behaviors of young, low-income Americans. But some encouraging data exist on several fronts. First, teen birth rates have been falling since 1991 and have reached their lowest point in 20 years. Second, after nearly four decades of relentless increases, all the statistical measures of illegitimacy leveled off in 1995 and have remained relatively stable since then. In fact, the illegitimacy rate for blacks has actually declined in recent years. Third, the percentage of children in female-headed families has declined slightly since 1997, while the percentage of children living with both parents has increased. While these felicitous outcomes are likely due in part to welfare reform, caution is required until these trends continue and even intensify.

The Work Support System

Alas, if increased work were the entire story, income and poverty would not show the wonderful trends I’ve reviewed. If left exclusively to her earnings, the typical young mother leaving welfare would only have a little more money than when she was on welfare and would still be well below the poverty level (about $14,000 for a family of three). Over the past three decades, however, Congress has constructed a set of programs that provide benefits to working families. Call it the work support system. This system includes cash wage supplements through the Earned Income Tax Credit, food stamps, Medicaid, child care, the child tax credit, and many less notable programs.

Although conservatives like to emphasize the mandatory work part of the welfare revolution, a second vital part of the revolution is the expansion and maturing of the nation’s work support system. Simplifying somewhat, we can say that before welfare reform occurred, the nation tried to fight poverty by simply giving stuff away—cash, food stamps, medical care, services of various types. The magnitude of giving expanded dramatically in the years after the “War on Poverty” began in 1965. Federal and state spending on means-tested programs expanded from around $50 billion in 1965 to around $350 billion in constant 1995 dollars. Yet child poverty actually drifted upward as spending exploded. Why? Because it is all but impossible for families on welfare to escape poverty. Despite the huge increases in spending, the Federal Government and the states constructed a welfare system that literally trapped young able-bodied Americans in poverty.

Welfare reform’s greatest achievement has been the replacement of the entitlement system of guaranteed poverty with a system that demands work and then subsidizes earnings. Nearly all the benefits and services offered inside the welfare system are now offered outside the system, thereby ending the incentive to go on welfare in order to receive most benefits. This new approach has contributed greatly to the historic increases in work effort and earnings, and consequent reductions in poverty. Self-sufficiency is on the rise.

Revisiting the 1996 Reforms

In the midst of this success story, Congress must reauthorize the welfare reform legislation by October 2002. A host of issues will arise. These include whether TANF should receive the same level of annual funding, how government can promote marriage while reducing out-of-wedlock births, how to help parents floundering in the work-based system, whether additional money should be spent for child care, whether the TANF program and the nation’s Unemployment Compensation programs provide an adequate safety net for low-income families, and how private and especially faith-based organizations can play a bigger role in fostering self-sufficiency, among others.

Foes of welfare dependency should emphasize that the new work-based welfare system is the best policy for helping the poor our nation has ever had. By making cash welfare conditional on work, and by using government authority to stress that self-sufficiency and work are the American way, the old entitlement program that fostered indolence and dependency has been replaced by one consistent with both American principles and the dignity of the poor. Most mothers on welfare have responded with vigor and have reformed their lives in ways that place them in the mainstream of American society. Dependency opponents should resist all significant changes to the TANF program, including its funding level, state flexibility, work requirements, sanctions, and time limits.

But reformers must also acknowledge that were it not for the work support system, the income of families leaving welfare would not rise and poverty would not fall by much. Far more single mothers work in low-wage jobs today because public policy has made work pay. These mothers now receive up to $6,000 in income supplements through the EITC and food stamps, as well as Medicaid coverage and, in many cases, child care. Because most of these work supports are also available to working families who have not joined welfare, it is quite possible the future will see not only shorter and less frequent welfare spells, but fewer low-income parents falling into welfare at all. Reformers must ensure that the work support system not only remains intact, but becomes more efficient and effective in helping low-income working families. The food stamp program, which currently helps less than half the eligible families trying to make ends meet without cash welfare, is especially ripe for attention.

In addition to conserving the basic features of work and work support systems, reformers should expand the spirited debate Congress had in 1996 about family composition, and this is an area where private philanthropists and charitable groups have an especially valuable role. The 1996 debate focused almost entirely on illegitimacy; the new debate should continue the illegitimacy focus but enlarge it to include serious attention to marriage. In the long run, unless marriage among the poor can be restored to higher levels, the nation will always have an abundance of families headed by never-married females—with all that means for school failure, crime, illegitimacy, and social unrest. But the great risk in pursuing a marriage agenda is that reformers will overplay their hand, especially by being obnoxiously judgmental both about individuals who have children outside marriage and about states that have not used their TANF dollars to mount serious programs against illegitimacy and in favor of marriage.

The Right Way to Promote Marriage

Here is an approach to promoting marriage that makes sense. Congress should convert the states’ $100 million per year illegitimacy bonus to a demonstration fund for marriage. That way the U.S. Secretary of Health and Human Services would have flexibility in selecting government and private organizations to mount carefully planned demonstrations to promote marriage. States selected would have half the costs of the program covered by the federal demonstration fund; states would pay for the other half out of their TANF funds. One promising demonstration would be to offer services to couples who have a baby outside marriage. Recent research by Sara McLanahan and her colleagues at Princeton shows that about half the couples who have an out-of-wedlock childbirth are living together, and an additional 30 percent say they are in a committed and loving relationship. If a total of 80 percent of these unmarried parents are romantically involved, their baby’s birth presents an opportunity for government, perhaps working with private and faith-based organizations, to help the couples move toward marriage. The parents should be informed of marriage’s importance for their child’s future; both parents should be offered employment services; and the parents should be offered premarital education and counseling that includes attention to domestic violence. Some states would likely plan demonstrations that also include financial incentives for marriage.

This approach to promoting marriage addresses all the criticisms now heard against the promotion of marriage, especially the silly accusation that promoting marriage would involve the government in setting up a dating service, as well as the understandable concern with domestic violence. Advocating marriage in this way also addresses the accusation that promoting marriage would mean forcing young couples to marry. In addition, a well-conducted demonstration with careful evaluations would yield information about what actually works to promote marriage. The experience with similar demonstrations and evaluations in welfare reform’s promotion of work shows that states are willing to develop innovative programs that truly help the poor.

Welfare reform has been enormously successful, at least in a good economy. But reformers should not assume the problems of dependency and poverty have been entirely solved, nor that government alone can solve them. Much more remains to be done. If opponents of welfare dependency do not define the remaining problems and fight for their solutions—through both governmental and philanthropic means—then more costly and less effective solutions will be pursued by politicians at the federal and state levels.

Ron Haskins is a senior consultant at the Annie E. Casey Fundation and a guest scholar in economic studies at the Brookings Institution.